General
Our policy is aimed at growth in conjunction with a relative reduction of market risks. Operational, market-related and financial aspects play an ever-increasing role in achieving this.
Operational Sales
Sales in Test & End-of-line Services make up approx. 40% of total sales. In this sector we have a strong reputation and we have built up a relationship of trust with our major customers. Sales in this sector as part of the total sales have diminished over the years. This reduction was expected due to semiconductor manufacturing moving to Asia. In response to this trend, we have strongly increased the spread within our total customer base over the past few years, which has reduced risk. While we have long-term contracts with many of our major customers, these contracts do not include purchase guarantees. Risks are mitigated by intensive communication with customers on anticipated volumes. Other sales are made in the sectors Supply Chain Management, Test Engineering, Qualification & Reliability and Failure & Technology Analysis. We focus on high-end work, which further reduces operating risks.
Costs
Globalisation is putting increasing pressure on prices, in particular in Test & End-of-line Services. This requires constant focus on improving cost management, reducing costs and optimising the test equipment load. Salaries and associated pension commitments are also monitored closely, as they make up almost half of our total costs. Using temporary staff is vital for RoodMicrotec’s operations in Germany in order to reduce risks. Currently, there are many employees on permanent staff in Test & End-of-line Services. In other market sectors in which high-quality staff is being used, there is a limited staff surplus cost risk. There is a shortage of highly trained technical staff in Europe.
Qualified staff
In view of the advanced technological level of our operations, the company is highly dependent on qualified staff. As it is not always easy to find such staff in the employment market, we have opted to set up our own training program in order to reduce the risk of not being able to attract qualified staff. We also collaborate with engineering firms.
The fact that RoodMicrotec has branches in the university cities Stuttgart and Dresden puts it in a better position to recruit high-quality staff.
Market risks
We operate in a highly cyclical market, which has contracted in Europe but continues to grow in Asia. The use of semiconductors, however, continues to rise, also in Europe. They are increasingly imported from Asia. We have opted for this growth segment – the supply chain from Europe to Asia and back to Europe and the rest of the world – from the point of view of risk management as it better safeguards continuity.
In the past various customers (IDMs) used RoodMicrotec as a way to generate additional sales in a short time span, which increases the company’s exposure to market fluctuations. In view of this, we reduced our risk and are increasingly focusing on customers who wish to outsource their test activities on a long-term basis, such as FCs and OEMs. This exposes the company to the upswings and downturns of the market, but also allows it to generate sales during downturns to customers who opt for outsourcing.
RoodMicrotec’s ideal and preferred form of outsourcing is for customers to contract out the entire supply chain, including all their engineering, qualification & reliability, failure & technology analysis and test activities (total test solution) to RoodMicrotec. In particular in Failure & Technology Analysis and Test Engineering, which have excellent
growth perspectives, not being able to hire good engineers presents a significant risk. RoodMicrotec mitigates its risks through an active personnel policy seeking a balance between permanent and temporary staff.
Competition
In Europe we are faced with competition from a number of countries. We aim to minimise our risk as a European independent semiconductor company with having our sales and operations in the Netherlands and Germany and agents in Britain, France, Italy, Israel, Russia and India as our main partners.
Finance
Financial markets
We operate in an capital intensive market, where significant fluctuations are a normal phenomenon. Dealing with such fluctuations requires having enough available cash. The financial market is not in balance today. These circumstances may influence and/or damage the financing of our activities.
Currency and interest rates
So far, we have made most of our sales in Europe. Since most of our work is invoiced in euros we have only limited exposure to currency fluctuations. We hedge our currency risk as much as possible. We will continue to monitor this aspect actively, certainly in view of the international operations that are under development.
We pay a relatively high interest rate on our short-term loans, and we are still making considerable repayments. Our stable balance sheet in 2014 has put us in a position to obtain loans at relatively favourable conditions. We will continue to work actively towards improving this situation assisted by external consultants.
Insurance
We have taken out adequate liability insurance for production faults, which is particularly important for the automotive industry.
Internal risk management and control system General
For our IT systems we have opted for an integral tandem solution in one location. To control risks, the mainframes that are part of the tandem are physically separated and situated in special fireproof environments. All sites are connected to the integral tandem system, reducing risks. The introduction of the system has been completed.
The various companies, including the holding company in the Netherlands, the branch offices and the business units, work with the same system, which allows for better monitoring of financial results.
Based on what is summarised above, RoodMicrotec feels that its internal risk management and control systems provide a reasonable degree of assurance that the financial reporting does not contain any material inaccuracies and that this system has worked adequately in the year under review. There are no reasons to believe that the system should not work adequately in the current financial year.
Strategic plans
Strategic plans are converted into budgets that are regularly compared to the actual state of affairs. Monthly reports are made that may give rise to corrective actions. The internal quoting process is subjected to a monthly (quality) audit, which investigates if the internal guidelines have been adhered to.
Internal evaluations and external audits
A schedule is drawn up every year for internal evaluations and external audits. This schedule is then acted upon by our employees and external auditors. Both the internal evaluations and the external audits may result in corrective measures; the management letters arising from the external audits are discussed by the supervisory board (audit committee).
Audit committee
Currently, there is no separate audit committee from among the members of the supervisory board. The supervisory board meets at least four times per year.
Ph.M.G. Nijenhuis CEO